In Bed with Wall Street

Regulatory corruption exposed, thanks in part to Gary Aguirre

An enlightening book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy, has been published by Palgrave Macmillan.

The thesis is that Wall Street, its regulators, and politicians conspire together for their own enrichment, effectively stealing their loot from investors who do not have protection from the predators. The costs of these regulatory failures are "virtually incalculable," says the author, Larry Doyle.

The 201-page book devotes seven pages to San Diego attorney Gary Aguirre. Doyle relates a story that has been told on this blog many times. After getting upbeat reviews from superiors, SEC employee Aguirre smelled possible passing of inside information by John Mack, a Wall Street bigwig, and Pequot, then a huge hedge fund. Aguirre wanted to interview Mack. But Aguirre was told, in effect, that Mack had too much clout and too many political connections. Aguirre was fired. But he went after the SEC.

Ultimately, Aguirre was exonerated by two congressional committees and won a $755,000 settlement in his wrongful-termination suit against the agency.

Pequot closed down and paid a $28 million settlement for using information that was illegally sourced. Who was the person who saved Mack from an interview? Why, it was Mary Jo White, who now heads the SEC.

Aguirre wrote to the author, "I saw how SEC management would create a fictional rationale for not pursuing the investigation against John Mack, which would be immediately replaced with a new one as the last one imploded. Somewhere between the third and fourth fictionalized account, I understood just how deeply the corruption was embedded in [SEC] Enforcement's management."

Comments

So what is the solution? I wonder if higher pay for SEC lawyers and agents might be needed. I think right now a lot of SEC employees realize they can go to a Wall Street or DC firm and make far more money. Maybe the SEC needs to have the ability to pay, let's say 300K-400K to highly talented key employees.

Bill, if the SEC could pay that much, Wall Street would just raise the ante. Your proposal is what some folks call "throwing money at a problem." The worst part is that when the SEC starts paying its attorneys that sort of salary, ALL the attorneys in the federal government--and there are a great many--will demand the same level of compensation. That what I call "You can't change just one thing." And so, the game just goes on with higher levels of corruption. Pay for attorneys isn't the problem, it's just the symptom. How do we stop the revolving door between the SEC and Wall Street? There are many tools available, but the system has to want to use them. At this time, it is a lack of political will, not a lack of means.

Visduh: I can remember SEC lawyers decades ago who were dedicated to rooting out corporate corruption. Now greed rules -- everywhere. Until zeal to fight thievery for the sake of the public returns, we will have to live with the present corrupt system. Best, Don Bauder

Somebody forgot to tell Nick Saban how much government employees can get paid. As an employee of the state of Alabama, serving as head football coach at the University of Alabama he's reportedly getting paid $6.9M / yr.

There's no fundamental reason the government can't pay more for certain critical skilled positions - they just need the right budget in the right place and someone to smack down whining union leaders who think everyone should get paid based purely on seniority irrespective of skillset or contribution.

ImJustABill
Saban may be an employee of the state of Alabama, but he is not paid by the state. The athletic department at Alabama, like those of many major universities, is 100% self-supporting, including student-athletes, coaches and staff. Their athletic department receives no funds from taxpayers.

danfogel: Unlike SDSU, where the football team drains funds from the academic budget. It's my understanding there are very few universities in which the athletic department is self-supporting. Remember, alum donations are donations that might go to academics. Best, Don Bauder

Don Bauder
Actually, you are incorrect in your assertion that football team drains funds from the academic budget. According to SDSU itself, football and men's basketball both are profitable enterprises, the only 2 such programs the university has. For 2013-14, SDSU has a budget totaling $721.3 million. From that $721.3 million, $38.4 million is spent on athletics. Of that $38.4 million, $31.9 million is derived from "Athletics Self-Support (IRA fees, ticket sales, corporate sponsorships and private donations." The remaining $6.6 million does come from the general fund, and is spent on sports OTHER THAN football and men's basketball.
Remember, the NCAA requires all Division I-A schools to sponsor a minimum of 16 intercollegiate sports. Six of those sports must be men’s and eight must be women’s. SDSU has only 6 men's and 12 women's sports to comply with Title IX and California law, requirements that a school's sports teams must match the women to men student body ratio. All public and private universities receiving federal funding must meet these requirements. So as I said, football does NOT drain from SDSU's academic budget, it's the other 4 men's and 12 women's sports that “drains funds from the academic budget". And as for those alum donations to athletics that could be going to academics instead, well not so much. There was a study a few years ago, I believe it was an Ivy League school, on the subject. If I remember correctly, they found that of donors who gave over a certain amount, I believe it was 50k, over 85% would not make those donations to academics if there were no athletic programs and the higher the donations, they were even less likely. Of course, there are exceptions. Phil Knight has contributed $300 million to the University of Oregon athletic programs over the past 20 years. But he also gave Stanford $105 million for the construction of the Knight Management Center at the Stanford Graduate School of Business. Of course, the fact that he is a gazillionaire might have something to do with that. And , just possibly, the fact that Knight has always said that Nike's business plan came out of his time at Stanford, might also have just a teeny bit to do with his donation.

danfogel: I should have updated my information. My wife taught many years at SDSU. She complained that football then WAS taking money from the general fund. However, I would say that, from what you say, the athletic department is indeed taking money from the general fund for those other sports.

Actually, I would like to study the athletic department's accounting. Is it rigged to make it appear that no academic money comes out of football? Best, Don Bauder

I wouldn't be surprised if the football team was taking money away from the general fund for quite a while. Until they had a 9-4 season a couple of yrs ago, they hadn't won more than 7 or 8 games in close to 40 yrs and attendance in the prior decade or so had been falling every year.
I don't quite understand your question. Perhaps did you mean is athletic department's accounting rigged to make it appear that no football money comes out of the academic fund? Or did you actually mean it how it came out, that the accounting rigged to make it look like that all of the football money stays in athletics when some of it actually makes it into academics, which would make no sense at all

danfogel: What I meant was that the books may be cooked so that it appears that football drains no money from the academic budget, but that the other sports do. That can be done with the flick of a pencil.

tomjohnston: The reason it might -- might -- be done is that there were faculty howls when football was taking money from the academic budget. To appease the faculty, the athletic department might make it look like football is not the villain, but other sports are. Best, Don Bauder

Don Bauder,
could that actually be done with "the flick of a pencil."? I know that sounds rhetorical, but I mean it seriously. The athletic department's revenue comes from so many sources. You have the above mentioned ticket sales, corporate sponsorships and private donations, you have the Mountain West conference revenue check that they get every year, I'm sure there are probably other sources as well. It would see that it would take a bit more than the flick of a pencil to cook the books; it would need a well thought out and well constructed conspiracy. But what purpose would it serve. SDSU reported $10,177,368 in football revenue, from all sources, last year. Those sources have their own accounting. How could, for example, there be an over reporting of the amount that the MWC pays them. It just doesn't seem likely. There are way too many variables that would be outside of the school's control. But more importantly, why would they do it? What would be the end game? SDSU reported $42,380,968 in athletic revenue last year, across all sports and all genders. Why monkey with the books for football? It doesn't make any sense what so ever. Also, I am just slightly curious as to why you would even broach the subject. You disdain for college sports is legendary; I believe you once said that you thought college sports should be abolished. But why pick on SDSU and football in particular?

danfogel: "Flick of a pencil" is just an expression that refers to all kinds of phony accounting. Of course altering the books in this fashion would be a complex project.

If you heard my wife and her colleagues screaming about football draining the academic budget, you would see that it makes complete sense for the athletic department to make it appear that football is self-financing. Blame the academic drainage on volleyball or some sport mandated by the NCAA. The academics that I know and respect have a contempt of football that they don't have for other sports. Best, Don Bauder

Whether higher pay for SEC lawyers or tougher regulation or tougher sentences for white collar criminals or some other solution - nothing gets fixed if the Congress and Executive branches aren't committed to fixing the problem.

ImJustABill: And today, just in the days of the Robber Barons, the Congress, Executive, and Judicial branches are NOT committed to breaking Wall Street's grip on the nation. Greed gets succor from all three branches. Best, Don Bauder

ImJustABill: I don't see how higher pay for SEC lawyers would help. The Wall Street firms offer SEC lawyers $2 million a year. Even if Congress gave the SEC a decent budget -- and that isn't likely to happen -- it won't be able to pay that much for lawyers. Best, Don Bauder

Larry Doyle (author of In Bed with Wall Street). The subhead of your fine book is "The Conspiracy Crippling Our Global Economy." Yes, you offer reform suggestions. But to carry them out, there has to be fundamental change. Greed grips our society at every level. That has to be broken before we can have long-lasting reform. Best, Don Bauder

I think people have gotten a lot better at rationalizing things and a lot worse at taking responsibility for things. The Wall Street firms may be doing a lot of unethical things but the economy is booming so it's good! The politicians may be taking a lot of bribes but they are providing jobs and resources to their constituents so it's good! As long as there is moral rationalization for everything then wrongdoing doesn't stop.

ImJustABill: The economy is booming? Huh? This is the worst recovery from a deep recession in many decades. For that reason, the Federal Reserve is ballooning money and credit, and as a result the stock market is booming. But the economy is still very weak, and has been for six years. Wall Street is booming because of Main Street's pain. And don't kid yourself: Wall Street keeps praying for Main Street's pain to continue. Best, Don Bauder

The economy is booming for the people in charge I should say. The DOW and Nasdaq are doing great. Meanwhile, many of the people not in charge are suffering without jobs or with losses in real earning power.

ImJustABill: Exactly. The economy is booming for the top 1 percent, and even for the top 10 or maybe 20 percent. But the gap between the haves and have- nots keeps expanding -- dangerously so.

There is much comment about the militarization of local police forces. The Occupy movement was brutally put down by armies of police thugs. I suspect that this is coming from Washington, D.C., which is fearful of a large revolt arising from the massive wealth and income disparities. Best, Don Bauder